Bullish Headlines Continue to Push Equity Markets Higher
Key Takeaways
- The government shutdown limits economic data.
- Foreign markets continue to lead the equity advance.
- AI headlines continue to support markets.
Equities gained on the week as the NASDAQ outpaced the broader S&P 500. Emerging markets gained 1.4% on the week, which doubled the 0.7% advance in the S&P 500. We are early in the fourth quarter and foreign markets continue to maintain their leadership. Emerging markets are up 30.7% year-to-date, which is well above the 16.0% gain in the S&P 500.
Economic data for the week was minimal due to the government shutdown. Monthly payrolls were missed. A small amount of privately sourced data came in, such as the ISM Services report. The numbers were not good with the headline falling from 52.0 to 50.0. The new orders bounce from the previous month faded as the number fell from 56.0 to 50.4.
Japan announced a new prime minister, which was a surprise to markets. For the first time ever, a female was chosen. It was also a strong shift to the conservative side, which is a tailwind to markets. Japanese markets popped higher on Monday, which domestic markets drafted off to continue their push higher.
Positive headlines power the momentum trade
News headlines continue in the AI space. Open AI has become the largest private company with a valuation of $500 billion following a secondary share sale this month. The latest valuation adjustment moves them above Space X. They also inked deals with AMD and NVIDIA. AMD shares are up more then 40% since the announcement this week. These headlines continue to energize momentum trades in speculative AI names.
The S&P 500 is now up 40% from the tariff lows in April and offered no viable pullback entry for investors caught offsides. The “bubble” word is finding its way into more media chatter, which is a poor market timing indicator. Usually this is symbolic of investors selling into strength only to have the market continue to run against them. A more concerning phrase would be “new paradigm” or any derivatives suggesting elevated complacency in the market.
Equity market breadth remains in good shape, but what is getting a lot of attention are the huge gains in momentum names, most of which are far removed from any quality label. The momentum factor among the 3000 largest domestic names is up 14% over the last three months, whereas the quality factor is up just 2%.
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Sources: BTC Capital Management, Bloomberg
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